Working Paper: NBER ID: w0802
Authors: Joseph E. Stiglitz
Abstract: This paper formulates a simple model of "perfect community competition." It is shown that (1) the equilibrium is Pareto optimal; (2) communities will, in general, be heterogeneous; not all individuals will have the same tastes; but (3) all individuals of a given skill within the community will have identical preferences; (4) in spite of the heterogeneity of tastes, there is complete unanimity with respect to tax and expenditure policy, and there is no scope for redistribution at the local level; (5) under certain circumstances, everyone's expected utility can be increased by introducing a particular kind of unequal treatment of individuals who are otherwise identical with respect to tastes and production characteristics; (6) when there is not "perfect community competition, " the equilibrium will, in general, not be Pareto optimal, and benefit taxation may be desirable.
Keywords: Public Goods; Community Competition; Pareto Optimality; Heterogeneous Individuals
JEL Codes: H41; D62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| community competition (L13) | Pareto optimal equilibrium (D51) |
| community dynamics (Z13) | consensus on public goods allocation (H40) |
| community competition (L13) | welfare improvements through strategic differentiation (D69) |
| lack of competition (D41) | inefficiencies in resource allocation (D61) |